Social protection systems: not simple, but worth the effort

By Alexander Pick, Economist, OECD Development Centre

Check out the upcoming international conference Together to achieve Universal Social Protection by 2030 for more on this topic

School kids in Kabupaten Karimon, Indonesia. Photo: Shutterstock

A systematic approach lies at the core of universal social protection. However, it is not immediately obvious what the term means, or why it is so important. After all, do we not take other systems for granted, like the system of government or health and education systems?

A social protection system must reflect the needs of the people it covers — ideally the entire population, throughout their lives and whatever their income — and it must incorporate the full range of different programmes that exist as well as the multitude of institutions involved. It must also harness different financing mechanisms for sustained and sustainable expansion. The fundamental objective of a social protection system is to get these moving parts working together to ensure coordination and coherence – to fill gaps, avoid duplication and optimise resource allocations to provide effective coverage against the most important risks people face.

This is simple, right? Complicating matters further is that the legislative basis for social protection can be slow to change and can codify separation between different components of the system, notably social assistance and social insurance. Moreover, tensions between different levels of government can disrupt the flow of information and finance required to ensure national policies meet local needs.

Since 2015, the European Union Social Protection Systems Programme (EU-SPS), financed by the European Union, the Government of Finland and the OECD, has been working with ten countries – six in Africa, three in Southeast Asia and one in Central Asia – to get a handle on the challenges of establishing a social protection system.1 The lessons emerging are as varied as the countries themselves. But we have also found considerable common ground across the countries, particularly in five key areas.

First, many countries already possess strong foundations for a social protection system, regardless of their income level. In some cases, the basis is information: Cambodia’s IDPoor system and Indonesia’s Unified Database each serve as a common database for all social assistance programmes, allowing beneficiaries of one programme to link to a complementary intervention that maximises their chances of emerging from poverty.

In other cases, one or two programmes can lay the foundation for a social protection system. Ethiopia’s Productive Safety Net Programme (PSNP) is one of Africa’s largest social protection programmes and is extremely successful by international standards at reaching the poor. Its success paved the way not only for an urban PSNP but also for Community-Based Health insurance, a new health initiative.

Second, high rates of informality across partner countries represent a huge challenge to establishing a social protection system. With social insurance mechanisms typically reaching less than 10% of the workforce (almost entirely in large formal enterprises and the public sector) and social assistance programmes targeted at the extreme poor, the gap in coverage is huge amongst those in the broad middle of the income distribution.

Indonesia’s health system, whose progress towards universal coverage is an international success story, has shown that the government can reach this missing middle by subsidising the contributions of informal workers. However, the fairness and the financial implications of this approach need careful monitoring. Better understanding the needs and characteristics of individual workers is critical.

Third, a social protection system is affordable; indeed, greater efficiency — doing more with less — lies at the core of a systematic approach. Ethiopia’s vision for social protection is based on covering a larger portion of the population against a wider range of risks at the same time as gradually ending its reliance on donor support. Bridging the gap between humanitarian relief and social assistance could create a major source of fiscal space as Ethiopia sets about achieving these twin ambitions.

Fourth, a social protection system needs to evolve. By maintaining its Soviet-era social protection system through a period of rapid economic transition, Kyrgyzstan was able to protect the majority of its population from poverty. However, shifting towards a system that is appropriate for a market economy has proven much harder. Indonesia’s social protection system was born amid the Asian Financial Crisis to protect the population during political, economic and social turmoil. Twenty years later, the social protection system lies at the heart of the country’s inclusive growth strategy, intended to propel Indonesia from the middle-income trap and make it one of the top ten economies in the world.

This leads to a fifth and final observation: systematisation is not an end in itself but a process. As countries at all income levels confront a range of uncertainties, such as climate change, the Industrial Revolution 4.0, large-scale migration and rapid demographic shifts, they need a system of social protection that will heighten their resilience and enhance their capacity to overcome challenges.

The good news is that the enormous progress in recent years to develop social protection systems is resulting in a rapidly growing evidence base and an abundance of expertise from all corners of the world. The answers are not always simple but the gains from persevering are incalculable.

Click here for more information about the EU-SPS country reviews.

1. The ten countries are Cambodia, Ethiopia, Indonesia, Kyrgyzstan, Mozambique, Namibia, Tanzania, Togo, Viet Nam and Zambia.