Financing Social Development: Issues for Discussion
Since the Social Summit, the question of how to improve
the flow of resources for social development has been receiving considerable attention.
But the search for new sources of funding, and for ways to make better use of existing
resources, takes place against a backdrop of global economic crisis and deteriorating
standards of living in many parts of the world.
Immediate action to improve the international economic
environment must therefore be the first item on any agenda for improving the context in
which social development can be promoted and financed. Today, a drop in a country's credit
rating can wreak havoc with even the most carefully crafted national budget. A sudden fall
in price for a key export commodity can have the same effect. The nature of the current
financial and trade regime is adequate neither for generating the required level of
resources in many countries nor for permitting their rational long-term use.
It is essential to stimulate growth and to confront the
need for redistribution. Present economic and social structures concentrate the world's
wealth in a few places, and among a few groups, while weakening the mechanisms that would
direct resources toward areas of greatest need. The search for new approaches to finance
social development must also take account of rapid technological change, and how this is
redefining existing structures of livelihood and employment in developed and developing
countries alike.
With these basic contextual elements in mind, UNRISD will
examine a number of recent efforts to improve the flow of resources toward social
development programmes in different regions and countries. In the tradition of previous
work on social policy at the Institute, this study will be based on the assumption that
mobilizing resources for development is, above all, a societal problem. Rather than
providing a technical analysis, UNRISD networks will concentrate on questions of politics
and priority-setting, institutional development and social change. Results of the study,
structured around the following areas and issues, will be published in the forthcoming
UNRISD report for Copenhagen Plus Five, Taking Global Responsibility for Social
Development: Policy Reform and Institutional Change in the 1990s.
Donor and creditor initiatives
A first set of international initiatives to be examined by
UNRISD should increase the availability of funds, currently in the hands of creditors or
donors, that can be channelled by national governments toward programmes of social
protection and social services.
Reducing the burden of foreign debt. International
lenders have moved from initial intransigence toward somewhat greater willingness to
renegotiate both private and public debt. But much remains to be done in this complex and
rapidly evolving area. The debt burden is foreclosing economic growth and forcing down
levels of social spending in the majority of countries around the world. What can be
learned from recent experiences in the field of debt reduction, including the "HIPC
Initiative" for the poorest and most highly indebted countries? How useful have these
efforts been? How are potential beneficiaries defined and what kinds of conditionality are
imposed? How are trends in indebtedness related to the evolution of social expenditure in
different national contexts? What new initiatives are on the horizon? Who supports them
and why?
Socially-sensitive adjustment programmes. For a
number of years, attempts have been made to implement macro-economic reform while still
protecting basic social spending. How are such initiatives proceeding? What trade-offs
arise when they are implemented? How is the experience reflected in attempts to reorient
the lending policies of multilateral financial institutions, so that a larger proportion
of their portfolios is allocated to social spending?
Rethinking foreign development assistance. There is
disenchantment among donors with foreign aid, which has declined in volume for a number of
years. Foreign direct investment, in contrast, has grown exponentially in a handful of
newly industrializing countries. What are the implications of these changes for social
investment and social policy in different national settings? And do other shifts in donor
policy—from project- to policy-based aid, and even in some cases to sectorially based
specialization—have implications for financing social development? What might be
accomplished by rethinking foreign aid entirely, with a view to creating a global system
of entitlements?
The 20-20 initiative. In the context of evolving
approaches to development assistance, this initiative deserves special attention. Through
it, donors and recipients agree to work toward assigning 20 per cent of their resources to
basic social services. To operationalize this commitment has not proved easy, in part
because the data that would be required to verify it are often lacking. Donor
co-ordination is also problematic. The experience raises important questions in the field
of international social policy.
Fiscal reform and social sector restructuring
Channelling more resources toward social protection and
social services depends in large measure on strengthening the fiscal capacity of national
governments and granting high priority to social sector spending. Social services must
also be managed as efficiently as possible. Therefore it is important to take up the
following issues, among others.
Tax reform. The 1990s have seen many efforts to
strengthen revenue-collecting mechanisms in developing countries. How influential has the
international lending community been in determining the content of these reforms? Have
they grown out of a serious local debate on alternatives, involving representatives of
many different interests? Or have they simply been implemented by technocratic fiat? What
institutional changes have been necessary to implement the new initiatives? Have these
changes been effective in raising revenue? How is the fiscal burden now distributed among
income groups? In a number of cases, new revenue seems likely to flow primarily from low-
and middle-income families (through rising taxes on consumption) and not from the wealthy
or from foreign investors.
National debates on social sector spending. During
a period of continuing economic crisis in many countries, increasing needs must be met
with declining resources. This lends special urgency to the debate on budgetary
priorities. An overview of trends in budgetary allocations to social and other programmes,
combined with an analysis of political debates, can be quite useful in highlighting the
trade-offs confronted by governments and citizens.
The political economy of pension fund reform. The
most remarkable element of pension fund reform in a number of countries is full or partial
privatization. This move from publicly to privately managed pension schemes channels
massive amounts of money into financial markets, which may or may not provide adequate
returns on investment. In the meantime, state treasuries must meet the onerous costs of
the transition. Although studies on pension fund reforms in various parts of the world
have examined their administrative efficiency, investment strategies and assessment of
risk, the social implications of privatizing pension funds, and the politics of the reform
process itself, have been much less carefully analysed. UNRISD will promote discussion on
this facet of the experiment.
Social sector restructuring in transitional settings.
Financing social development is particularly problematic in countries undergoing radical
political and economic transformation. The difficulty is not simply to find new modalities
of funding, but to construct institutions that can provide social protection and services
when earlier arrangements begin to crumble. Should the international development community
rethink its policy advice to countries in transition? What alternatives are being put
forward in the countries themselves to deal with the social crisis?
Using existing resources more efficiently
Finally, a great deal of effort has been invested in recent
years in designing new ways of organizing and delivering social services, so
that—even if levels of funding are stationary or declining—existing resources
can be used more efficiently. Behind such initiatives there is often an anti-state bias,
bred by disenchantment with faltering efforts on the part of national governments to deal
effectively with declining levels of welfare. In some cases, governments (whatever their
specific institutional and political characteristics) are simply assumed to be incapable
of assuring a minimum level of welfare for their citizens. Thus it is considered necessary
to look for alternatives in the business sector (through privatizing public services), the
realm of not-for-profit associations (through giving NGOs primary responsibility for
certain social services or activities), or via community organizations (through organizing
people to provide for themselves).
UNRISD will examine a number of issues raised by these
initiatives.
Privatization of public services. The economic
rationale often given for privatization is the perceived need to reduce the cost to
taxpayers of public social services and to ensure that groups with the capacity to pay are
not "subsidized" with public funds. The political/ideological rationale is to
reduce the role of the state. With great frequency, such strategies lower the quality of
public education and public health—still provided to low-income groups—and widen
the gap between those who can afford to pay for adequate attention and those who cannot.
Nevertheless there are many variations on the theme of privatization, and some (like
allowing citizens to choose among alternative service providers) often improve efficiency.
Decentralization of management. To an increasing
extent, government funds for health, education or income support are managed at provincial
or municipal levels. This may imply a special effort to involve citizens' groups in policy
making and oversight activities, or it may not. The virtues and vices of decentralization
have been much discussed. But decentralization is not a panacea. Its impact depends on the
social and political setting in which it occurs, as well as on the institutional
structures involved.
Targeting social benefits. "Welfare"
payments and other forms of support provided to particularly disadvantaged groups are
standard instruments of social policy in most countries. It is logical for scarce
resources to be directed toward the neediest. But targeted payments can also stigmatize.
They create a clientele of second-class citizens, who can be easily manipulated by those
in power. Furthermore, in countries where the majority of the population is poor or
destitute, such instruments are wholly insufficient. In these situations, means-tested
programmes of support are simply unworkable. Does experience in a variety of different
country settings suggest a need to rethink the concept of targeting?
Local self-help initiatives. Like targeting,
approaches to social development that rely primarily on self-help efforts among relatively
disadvantaged groups can be both useful and limited in their capacity to improve
well-being. It is important to focus on new ways to mobilize local resources in low-income
areas, as the micro-finance movement illustrates. There is scope for institution-building
in areas like micro credit, as well as in local insurance and pension schemes. But these
initiatives are likely to be most successful in a context of economic growth and expanding
social rights. They cannot be full substitutes for redistributive public policy.
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