SHAPING THE FUTURE OFSOCIAL PROTECTION:

ACCESS, FINANCINGAND SOLIDARITY

Andras UthollOfficer-in-Charge

Social Development Division

THIRTY-NINTH MEETING OF THE PRESIDING OFFICERS OF THE REGIONAL CONFERENCE

ON WOMEN IN LATIN AMERICA AND THE CARIBBEAN

Mexico City, 11-12 May 2006

The welfare State founded upon the concept of a labour-based society has not lived up to expectations

Limited coverage, which is a factor in social exclusion Income inequality carries over into social protection

The reforms of the 1990s sought to improve financing and access by:

Creating a closer link between employment and protection based on the formalization of the labour market

Placing more emphasis on incentives and efficiency than on solidarity

Background and the Reforms of the 1990s

Despite the reforms, non-contributory coverage has not

increased since 1990

ChiMéx C.Rica

Arg*

BraAverage

Ecu*

El Sal

Bol*

Nic

0

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70 80

Coverage c.1990

Co

vera

ge c

.2002

COUNTRIES WHERE

COVERAGE IMPROVED

COUNTRIES WHERE

COVERAGE WORSENED

LATIN AMERICA: COVERAGE IN 1990 AND 2002

(% of employed persons paying contributions)

45.4%

21.9%

68.2%

21.7%

54.9%

20.4% 18.9%

32.3%

1 2 3 4 5 6 7 8

Average coverage: 38.7%

LATIN AMERICA AND THE CARIBBEAN:EMPLOYED WORKERS WHO PAY CONTRIBUTIONS (c. 2002)

Urban Rural Urban Formal

Urban Informal

Men Women (% working age

population)

Q5 Q1 (rich) (poor)

Inequity in the structure of contributions

On average

4 out of every 10 employed persons4 out of every 10 employed persons pay into the social security system

4 out of every 10 persons over 704 out of every 10 persons over 70 receive income through retirement or other pensions

4 out of every 10 persons4 out of every 10 persons live in poverty

A high degree of heterogeneity among the countries of the region

NEW DEMANDS FOR SOCIAL PROTECTION

Social protection is essential in order for democratically elected governments to ensure that economic development becomes a positive force for all.

Social protection must be politically and financially viable (combining efficiency and solidarity).

Change in approach: employment should no longer be seen as the only mechanism for access to social protection.

A new social covenant is needed in order to UNIVERSALIZE SOCIAL PROTECTION through:

Achieving efficiency and solidarity in the financing of benefits Dealing proactively with changes in demographics, epidemiological patterns and family structure

Neutralizing sources of discrimination:• In the definition of employment vs labour (roles)• In the labour market • In social protection systems

THE REFORMS MUST BE REFORMED, AND THERE IS NO ONE-SIZE-FITS-ALL

SOLUTION

This calls for a social covenant in order to: Define explicit, guaranteed and enforceable rights Define levels and sources of financing

Contributory – Non-contributory Integrate solidarity mechanisms Develop a framework of social institutions

• Social policy management • Coordination of supply of services

Social protection: a change in approach

Labour should not be perceived in the short or medium term as the only mechanism for access to social protection

Need to strike a better balance between incentives and solidarity

New forces of change in demographics, epidemiological patterns and family structureA new social covenant is needed in

order to universalize social protection

Content of a new social covenant

Explicit, guaranteed and enforceable rights

Definition of levels and sources of financing (solidarity mechanisms)

Development of a framework of social institutions

Promoting a social covenant

Compatible with a fiscal covenant DemocracyFiscal responsibilities• With minimum guarantees• Modify the tax burden• Improve the productivity of public delivery of socially valued and/or public goods

Highlighting the role of education• Universal secondary education• Reduce rural/urban gap and differences between socioeconomic levels• Narrow the gaps between elite and public education• Pre-school for the poor• Learning to learn• School insurance

More and better jobs• Address productive heterogeneity• Pro-employment investment • Human resources approach• Reduce discrimination• Improve or supplement labour relations with demands of innovation and the business cycle• Retraining• Unemployment insurance

Universal, solidarity-based and efficient social security• Reform public/private mix• Incorporate solidarity into financing to improve access without sacrificing savings or insurance• Improve contingent risk protection• Finance housing for the poor

Improving social cohesion• Promote citizen participation in matters of collective interest• Improve governance by modifying incentives for investment in privatized basic social services and upgrade their regulatory framework

Sources of financing

Challenges for social protection systems: Increase non-contributory financing

by boosting tax collection and reallocating expenditure

Include a solidarity component within the contributory scheme

Public revenuesLOW LEVEL OF TAX REVENUES

(% GDP, 2004)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Arg

en

tin

a

Bo

livia

Bra

sil

Ch

ile

Co

lom

bia

Co

sta

Ric

a

Ec

ua

do

r

El S

alv

ad

or

Gu

ate

ma

la

Ha

ití

Ho

nd

ura

s

Mé

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o

Nic

ara

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a

Pa

na

má

Pa

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y

Pe

rú

Re

p.

Do

min

ica

na

Uru

gu

ay

Ve

ne

zue

la(R

B)

Tax revenues Social security contributions

Other revenues Capital revenues

Tax revenues+SS: 17.5%Total: 20.8%

Working towards universal social protection in health implies

recognizing:

Sharp inequities in access to and quality of services

That the lack of integration between public and private social security sectors spawns inefficiencies and risk selection (skimming)

The process of demographic, epidemiological and technological transition

Inequity: out-of-pocket spending on health

OECD

VENURY

TTO

SURVCT

LCA KNA

PER

PRY

PAN

NIC

MEXJAM HND

HTI

GUY

GTM

GRDSLV

ECUDOM

DMA

CUBCRI

COL

CHL

BRABOL

BLZ

BRB ARG

ATG

0

1

2

3

4

5

6

7

8

0 10 20 30 40 50 60

Out-of-pocket spending on health as apercentage of total spending on health (%)

Pu

bli

c s

pe

nd

ing

on

he

alt

ha

s %

of

GD

P

LAC

Incidence of diseaseDALYs per 1,000 inhabitants

29 29 27 39 26

112108

115 120 103108

98

45 35 39

101

12

8

0

50

100

150

200

250

300

Group I (communicable)Group II (non communicable)Group III (accidents, violence)

Latin America and the Caribbean

High-income

Middle- income

Low-incomeLatin America and the

CaribbeanOECD, high-income

World average

The health reform agenda must include:

Steps towards the integration of subsystems: In financing:

• Integrating solidarity-based contributory and non-contributory mechanisms (public and social security)

• Defining benefits with universal coverage and guaranteed enforceability (health needs)

In provision: • Separating financing and provision functions • Improving payment, regulatory and supervisory mechanisms• Promoting integration into the network of public providers• Public/private mix

Public health more focused on: Primary health care, preventive and curative medicine, and

promotion Defining universal programmes on the basis of morbidity and

mortality Improving checks and cross-checks

Challenges for pension systems

Ageing of the population and limited contributory and non-contributory pension coverage

Segmented contributory systems with financing difficulties

Difficulty of reaching a consensus on parametric reforms in PAYG systems

Limited coverage of non-contributory systems

Pension coverage: Only 4 out of every 10 persons over 70 receive some sort of

pension

0102030405060708090

100

Arg

en

tin

a

Bo

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ia

Bra

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Ch

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Co

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bia

Co

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Ric

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El

Sa

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Gu

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of

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ns

ion

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42

The pension-system reform agenda should include measures

for: Increasing coverage through the non-contributory component

Targeted pension benefits can halve the poverty rate at an average cost of 0.9% of GDP

Reforming the contributory system Contributory solidarity Financial viability

• Discretionary parametric reforms• Notional accounts

Treating individually-funded accounts as a complementary mechanism

Differing modalities - transition costs

Industrial organization Promoting system convergence

Promote equity by standardizing and validating benefits Make benefits portable, thereby facilitating labour mobility

Non-contributory pensions for over-65s to cut the poverty rate in half

COST OF PENSION BENEFITS EQUIVALENT TO ONE POVERTY LINE(As percentage of GDP)

0

1

2

3

4

5

6

Arg

en

tin

a

Bo

livia

Bra

zil

Ch

ile

Co

lom

bia

Co

sta

Ric

a

Ec

ua

do

r

El S

alv

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or

Av

era

ge

LA

C

Gu

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la

Ho

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Me

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Pa

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y

Do

min

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nR

ep

ub

lic

Uru

gu

ay

Ve

ne

zue

la(R

.B.)

Cost of targeted pensionCost of universal pension

0,9 2.2

Promoting a social covenant

CTP

Compatible with a fiscal covenant Democracy

Fiscal responsibilities• With minimum guarantees• Modify the tax burden• Improve the productivity of public delivery of socially valued and/or public goods

Highlighting the role of education• Universal secondary education• Reduce rural/urban gap and differences between socioeconomic levels• Narrow the gaps between elite and public education• Pre-school for the poor• Learning to learn• School insurance

More and better jobs• Address productive heterogeneity• Pro- employment investment • Human resources approach• Reduce discrimination• Improve or supplement labour relations with demands of innovation and the business cycle• Retraining• Unemployment insurance

Universal, solidarity-based and efficient social security• Reform public/private mix• Incorporate solidarity into financing to improve access without sacrificing savings or insurance• Improve contingent risk protection• Finance housing for the poor

Improving social cohesion• Promote citizen participation in matters of collective interest• Improve governance by modifying incentives for investing in privatized basic social services and upgrade their regulatory framework

BACKGROUND

Poverty limits people’s ability to exercise their citizenship and to demand their rights.

A number of factors perpetuate the intergenerational transmission of poverty.

The multidimensionality of poverty has given rise to a wide range of projects and other measures.

The document focuses attention on: Emergency job-related programmes Conditional transfer programmes.

IN SOME COUNTRIES CONDITIONAL TRANSFER PROGRAMMES (CTP) ARE IMPORTANT

PROGRAMME Beneficiaries / Population

(%)

Spending/ GDP

(%)

“Bolsa Familia” (Brazil, 2003)

16.0 0.28

Chile Solidario (Chile, 2002)

6.5 0.10

Familias en Acción (Colombia, 2001)

4.0 0.30

Superémonos (Costa Rica, 2000)

1.1 0.02

Programa de Asignación Familiar PRAF (Honduras, 1990)

4.7 0.02

Programme of Advancement through Health and Education (PATH)

(Jamaica, 2002)

9.1 0.32

Oportunidades (former Progresa) (Mexico, 1997)

25.0 0.32

Red de Protección Social Mi Familia (Nicaragua, 2000)

1.2 0.02

Challenges for anti-poverty social programmes

Alleviate poverty in the short run Break the cycle of intergenerational

poverty transmission (human capital) Create a framework of social

institutions: Intersectoral coordination and integration Transparency and evaluation Continuity and consistency Engagement of civil society

Proposals for these programmes

1. Share the programme-generated workload within the household (CTP)

2. Incorporate social capital criteria

3. Proactive role for the State in incorporating beneficiaries into the programmes

4. Ensure that supply of health and education services match programme-induced increase in demand (CTP)

5. Adaptability to context changes (explicit exit and entry rules)

6. Strengthen skills-building in employment programmes

Supplement human capital training with the promotion of productive policies

Promoting a social covenant

Compatible with a fiscal covenant Democracy

Fiscal responsibilities• With minimum guarantees• Modify the tax burden• Improve the productivity of public delivery of socially valued and/or public goods

Highlighting the role of education• Universal secondary education• Reduce rural/urban gap and differences between socioeconomic levels• Narrow the gaps between elite and public education• Pre-school for the poor• Learning to learn• School insurance

More and better jobs• Address productive heterogeneity• Pro- employment investment • Human resources approach• Reduce discrimination• Improve or supplement labour relations with demands of innovation and the business cycle• Retraining• Unemployment insurance

Universal, solidarity-based and efficient social security• Reform public/private mix• Incorporate solidarity into financing to improve access without sacrificing savings or insurance• Improve contingent risk protection• Finance housing for the poor

Improving social cohesion• Promote citizen participation in matters of collective interest• Improve governance by modifying incentives for investment in privatized basic social services and upgrade their regulatory framework

Three dimensions of such rights: ethical procedural content

Economic and social rights in public policies

Work to build genuine social citizenship

In summary

The job of universalizing and improving social protection is yet to be completed

Employment alone cannot universalize coverage Greater complementarity between solidarity and

incentives Reforms should include integration of contributory

and non-contributory systems

Reforms within the context of a social covenant in which rights constitute the normative horizon and economic

inequalities are constraints to be overcome

SHAPING THE FUTURE OFSOCIAL PROTECTION:

ACCESS, FINANCINGAND SOLIDARITY

Andras UthollOfficer-in-Charge

Social Development Division

THIRTY-NINTH MEETING OF THE PRESIDING OFFICERS OF THE REGIONAL CONFERENCE

ON WOMEN IN LATIN AMERICA AND THE CARIBBEAN

Mexico City, 11-12 May 2006